Tiffany & Co. (TIF) vs. Michael Kors Holdings Ltd (KORS): Which Is the Better Buy?

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TIF - Tiffany & Co. (TIF) vs. Michael Kors Holdings Ltd (KORS): Which Is the Better Buy?

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Have you ever read something while browsing online that sparks an internal debate about which stock is the better buy? Tiffany & Co. (NYSE:TIF) and Michael Kors Holdings Ltd (NYSE:KORS) is a classic example.

Tiffany & Co. (TIF) vs. Michael Kors Holdings Ltd (KORS): Which Is the Best?

Investors love dueling stocks.

Recently, two articles caused me to debate the pros and cons of owning either TIF or KORS stock. The first piece focused on Tiffany CEO Frederic Cumenal’s turnaround plan for the 179-year-old jewelry retailer. The second examined which luxury brands were underrepresented in China, the country most responsible for the luxury sector’s growth over the past decade.

To a large extent, big brands such as Versace, Zegna, Givenchy and many others owe their recent success to China and the Chinese.

Interestingly, out of a list of 25 large luxury brands and their retail exposure to China, Tiffany and Michael Kors were at the bottom of the list. KORS has just 36 locations in the country out of 734 globally (4.9%), while TIF has just 31 locations out of a smaller global footprint of 313 stores (9.9%). Only two others on the list of 25 derive less than 10% of their locations from China — Hermes and Louboutin.

So, while Tiffany might be struggling with a modern jewelry-buying demographic and Michael Kors faces a tough go in Europe, where it generates a fifth of its annual revenue, there’s a lot to like about both stocks.

Using a traditional SWOT analysis, I’ll examine which stock is the better buy.

The Pros and Cons of Tiffany (TIF)

Tiffany Strength

You don’t stay in business for 179 years without selling a product that consumers are willing to pay for. Sure, people might not be as extravagant about their jewelry purchases today as they once were, but I know from experience (my wife is a big fan) that a quality necklace, ring, bracelet or set of earrings are always popular gifts for special or not-so-special occasions.

Value Line had this to say about the company in Oct. 2015.

“… the Tiffany brand, instantly recognizable by the company’s little blue boxes and bags, remains synonymous with luxury, and continues to resonate with affluent consumers worldwide and all those that aspire to improve their financial lot. What’s more, Tiffany has retained excellent pricing power, even as many retailers struggle to maintain gross margins in a highly promotional climate.”

Despite this rough patch, it knows how to make money.

TIF Weakness

While the blue box is synonymous with Tiffany, it’s fair to say that its brand had become a tad dated forcing it to modernize its product line. The hiring of jewelry designer Francesca Amfitheatrof in 2013 and Reed Krakoff in the last month suggests Cumenal understands this.

The success or failure of TIF stock lies in large part with its ability to remake itself in a fresh and modern way. That’s no slam-dunk.

Tiffany Opportunity

While China is obviously a seductive target for the company given that it is projected to have more than 1 billion middle-class people by 2030, I believe that it can really make some hay right here in the U.S., where smaller-format stores can deliver even greater profit margins for investors.

China is important, but it won’t hit its all-time high of $110.60 in the near future without taking domestic market share. I see it being up to the task.

TIF Threat

In an effort to broaden its customer base, it faces alienating its core audience — those people who plan to spend more than $500 annually on jewelry. Luxury means just that. Cheapening the brand just to sell a few more items, especially the less expensive ones, could scare away long-time customers.

Cumenal must find the right balance to ensure it keeps growing.

The Pros and Cons of Michael Kors (KORS)

Michael Kors Strength

A quick glance down a list of its peers shows that very few retailers have its profit margins — KORS’ operating margin in the trailing 12 months was 24.9% — with Moncler SPA NPV (OTCMKTS:MONRF), the maker of luxury ski jackets, the only competitor to do better at 28.7%.

Despite facing competition from Kate Spade & Co (NYSE:KATE) and others, at the end of the day, KORS simply makes more money and that’s always a good thing.

KORS Weakness

Currently, Michael Kors’ weakness is its business at retail, where same-store sales in fiscal 2016 decreased by 0.9% excluding currency, with expectations for a small, same-store sales decrease once more in fiscal 2017.

That’s a big drop from the 26.2% same-store sales increase it delivered in fiscal 2014. It clearly won’t be going back to those days, but positive comps would be nice.

Michael Kors Opportunity

As recently as 2014, its online presence was managed by Neiman Marcus. That’s no way for a global luxury brand to operate its e-commerce business. CEO John Idol believes its digital business could someday represent 20% to 30% of its global revenue someday.

On track to launch a bunch of sites in Europe this fall and more in 2017, look for KORS’ online strategy to keep its profit margins some of the highest in retail.

KORS Threat

The big problem for Michael Kors and pretty much every other retailer is the slow and agonizing death of the mall here in North America, which has contributed to its same-store sales slowdown in recent quarters.

If Asia and Europe follow along, its shareholders can only hope it can deliver on its e-commerce potential because if it doesn’t, the party’s going to be over.

Bottom Line

I like both of these companies. Their brands are special in a retail world that flaunts sameness.

If you can own both, that’s exactly what I’d do. I see both TIF and KORS doing well for shareholders in the next 3 to 5 years.

However, if only one can be had, Michael Kors has to be the pick given its valuation. By every metric, KORS is cheaper than TIF.

Happy shopping.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/07/tiffany-co-tif-vs-michael-kors-holdings-ltd-kors/.

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